Business model of the Group

Aurubis AG is a provider of non-ferrous metals that operates worldwide. As an integrated group, we process complex metal concentrates, scrap metals, and metal-bearing recycling raw materials into metals of the highest purity. In addition to our main metal, copper, our metal portfolio also includes gold, silver, lead, nickel, tin, minor metals such as tellurium and selenium, and platinum group metals.

The company is based in Hamburg, Germany, where its headquarters and key production facilities are located. Most of its other sites are located in Europe, with larger production centers in Germany, Belgium, and Bulgaria. Outside Europe, Aurubis also has a production site in the US, and a global sales and service network.

In accordance with our Vision 2025, we will consistently expand our current copper-focused business model to encompass a broader multi-metal approach in the future. This means that, in addition to copper, other metals will be extracted from systematically purchased raw materials and intermediate products and then processed into value-added sales products. We use both copper concentrates and recycling materials as raw materials.

We process copper concentrates that are obtained from ores and offered by mining and trading companies on the global market. Because we have no stakes in mines, we have to buy the necessary raw materials for our two primary smelters in Hamburg and Pirdop on the international market. Aurubis has a global, diversified supplier portfolio; we source a significant portion of our copper concentrates from South American countries such as Peru, Chile, and Brazil. We also purchase raw materials from other countries like Bulgaria, Georgia, and Canada. As a buyer, Aurubis competes with other primary copper smelters, most of which are located in China and Japan. Copper concentrates for the Hamburg site reach us primarily by waterway and are transshipped via the port terminal in Brunsbüttel. There, the different copper concentrates are also premixed in accordance with the requirements of our production processes. At the site in Pirdop, Bulgaria, concentrates reach us by land and sea via the port of Burgas.

We use copper concentrates, copper scrap, other metal-bearing recycling materials, and bought-in intermediates as feed material. Most of the copper scrap and metal-bearing recycling raw materials for our two secondary smelters in Lünen (Germany) and Olen (Belgium) are sourced in Europe. Furthermore, we use copper scrap with high copper contents for cooling purposes in both of our primary smelters.

Metal trading companies are the main actors on the supply side, though some recycling materials also reach us directly from product manufacturers. On the demand side, our main competitors are other copper and metal smelters, as well as metal processors that also utilize recycling materials. Copper scrap tends to reach us by land.

In the course of our production processes, we convert copper concentrates and copper scrap into copper cathodes . This is the standardized product format that is traded on the international metal exchanges. Copper cathodes are the starting product for fabricating additional copper products, but they can also be sold directly. Our product portfolio mainly comprises standard and specialty products made of copper and copper alloys. When it comes to processing, we have manufacturing capabilities for continuous cast copper wire rod, continuous cast shapes, rolled products, strip, specialty wire, and profiles.

Additional products result from processing the elements that accompany copper in the feed materials. In particular, these include different metals such as gold, silver, lead, nickel, tin, minor metals like tellurium and selenium, and platinum group metals. We also produce iron silicate and sulfuric acid, the latter of which forms as a by-product of copper concentrate processing. Sulfuric acid customers and competitors are very diverse: customers include companies from the chemical, fertilizer, and metal processing industries.

The sales markets for our products are varied and international. Aurubis’ direct customers include companies from the copper semis industry, the cable and wire industry, the electrical and electronics sector, and the chemical industry, as well as suppliers from the renewable energies, construction, and automotive sectors.

To close the value chain for copper and other metals, we place a high priority on the “closing-the-loop” approach. The focus of this approach is on materials such as production waste and residues that accumulate along the copper value chain in production, for example with our customers. The materials range from copper scrap with very high copper content, which we can directly feed into the copper fabrication process, to stamping waste containing precious metals and high levels of copper, alloyed scrap, slags from foundries, and other industrial residues.

In fiscal year 2018/19, the Aurubis Group’s organizational framework was based on the underlying business model. The Group’s structure is made up of two operating segments, which are the basis of segment reporting pursuant to IFRS 8 for fiscal year 2018/19: Segment Metal Refining & Processing and Segment Flat Rolled Products.

• Segment Metal Refining & Processing (MRP) processes complex metal concentrates, copper scrap, and metal-bearing recycling materials into metals of the highest quality. Segment MRP includes the Commercial and Operations divisions. The Commercial division combines all market-relevant organizational units and is therefore responsible for purchasing feed materials and selling products. The Operations division is responsible for the production of all basic products and metals, as well as for their further processing into other products, such as continuous cast wire rod and shapes. The sites in Hamburg (Germany), Pirdop (Bulgaria), Olen (Belgium), and Lünen (Germany) manufacture copper cathodes, among other products. These cathodes are processed further into wire rod and shapes at the Hamburg (Germany), Olen (Belgium), Emmerich (Germany), and Avellino (Italy) sites.
• The second segment, Segment Flat Rolled Products (FRP), processes copper and copper alloys – primarily brass, bronze, and high-performance alloys – into flat rolled products and specialty wire, which it then markets. The main production sites for this are Zutphen (Netherlands), Buffalo (USA), Stolberg (Germany), and Pori (Finland). Furthermore, the segment also includes slitting and service centers in Birmingham (UK), Dolný Kubín (Slovakia), and Mortara (Italy), as well as sales offices worldwide.
  The European Commission blocked the sale of Segment FRP in February 2019. Aurubis AG is currently reviewing other strategic options for the segment. The segment thus continues to fulfill the conditions for presentation as discontinued operations pursuant to IFRS 5.

A list of shareholdings pursuant to Section 313 (2)of the German Commercial Code (HGB) as at September 30, 2019 is provided in the notes to the financial statements.

The significant factors specific to the business are the treatment and refining charges  for copper concentrates and recycling materials, the metal prices, the Aurubis copper premium, and product surcharges for copper products, as well as sales revenues for sulfuric acid. Furthermore, efficient metal gains in our plants lead to effects on earnings.

Copper is priced first and foremost on the London Metal Exchange (LME  www.lme.com), which facilitates physical transactions, hedging, and investment business. The price is not just a benchmark for exchange trading but serves as the basis for pricing in the raw material and product business.

Treatment and refining charges are negotiated with suppliers when purchasing copper-bearing raw materials. The TC/RC trend depends on the current supply and demand structure on the global markets. Essentially, these charges are discounts on the purchase price for turning raw materials into copper cathodes (the commodity exchange product) and other metals and metal compounds.

The metal exchange and market quotation for copper serves as the price basis for our copper product sales. The premium and product surcharges, which are charged for converting cathodes into copper products, are also part of the sales price.

Our business development is also influenced by external factors. These include the economic performance in key countries and activities on the international financial markets; the political, legal, and social conditions; changes in the exchange rate and interest rate level; and the situation on our relevant markets.